In the current environment of low interest rates, it is not uncommon to find a plethora of alternatives investment ideas offering the holy grail – guaranteed investment returns with a stable capital base offering far in excess of bank deposit or government bond rates.
As experience has taught us, and the old adage, “if it looks too good to be true, it probably is”. A case in point has come to light over the last few years, building up into a drama which is about to climax. I review the details in a recent video.
This refers to an investment opportunity called “Park First”. The Park First concept offered retail investors a chance to open car park spaces near some of the busiest airports in the UK and thus charge a rental from income derived from charging travellers using these airports a parking fee to park their car whilst they jet off on their business trip or vacation.
That offer, superficially, seemed enitcing.
In return for a capital investment amount, the Park First team would ensure a GUARANTEED return equivalent to 8% per annum of the sum invested for the first 2 years, rising to 10% in years 3 and 4, and 12% in years 5 and 6. Car Parking is a lucrative industry seemingly for those property owners, and finally the ordinary small investor could share in these preferential terms.
A number of years later, the dream lies in tatters.
The first formal warning signs, for those of us not already sceptical about the voracity of the exercise, came in December 2017, with a statement from the FCA (the UK’s Financial Conduct Authority) stating that Park First had been promoting their ‘scheme’ in the UK as a collective investment scheme:
“We took the view that these were collective investment schemes, which can be a high-risk investment. Only authorised firms and individuals can operate or promote them.
Park First is not authorised by us and is not permitted to provide regulated financial services.
Park First has agreed to stop operating and promoting the original schemes.”
However, that just forced the Park First management to seek investors in further locations, including Russia, where the selling of such schemes is still considered ‘grey’.
Investors are now patiently waiting for their rental income to be paid, but instead are now being recommended, in some cases strongly, to accept the Company offer of a “lifetime leaseback”, which will avoid any obligation on behalf of Park First to buy back the original investment in exchange for the parking space being returned.
This is just the tip of the iceberg as there is a long list of those trying to wrestle assets back from the clutches of Park First.
Leading the way are Park First investors themselves. This group of investors are now suing the Directors of PF and others for fraud. The plaintiffs claim that PF “drastically overvalued” the leases at London Gatwick and Glasgow Airports. They allege that the sub leases were to provide 8-12% per annum returns over a 6-year period were broken after only 2. That the secondary market which was promised to investors as a means to exit this now disastrous investment was non-existent, and in some cases the Car Park itself has been fenced off and barricaded from cars entering, this making it impossible to achieve any returns at all.
Next in line, the FCA (Financial Conduct Authority) is now also suing Park First alleging it was an “illegal collective scheme”. The FCA consider the Park First claim, that these parking spaces were already sold at a 25% discount to value, as being “unreasonable” due to inaccurate valuations.
As a result, Park First has called in administrators Smith & Williamson. They have been appointed to oversee a Company Voluntary Agreement. A CVA is a way of structuring the business with an objective of renegotiating debts with the relevant creditors.
The independence of these administrators is being called into question, specifically over the recommendation to accept an offer from the Directors of Park First to write off a debt of around £114m.
The controversy comes from the facts surrounding that sum which has been loaned to 4 other companies in the Park First Group, has been declared by Smith & Williamson to have “no recoverable value”, whilst not providing any further details as to which companies this was lent to, why these loans now have no value, nor why it was loaned to these companies in the first place.
Remember Park First are in the same ‘stable’, and with some of the same protagonists, as Store First – a storage pod investment outfit which was subject to a winding up order in the English High Court in April 2019. Thus there is good reason to suspect some foul play in a myriad of corporate vehicles.
A meeting of investors / shareholders will soon decide whether to take the Smith & Williamson route of administration or to flat out liquidate the company and what remaining assets it may have.
Lessons to be learnt from this are straiht from “Investments 101”:
- Beware of anything promising cash back or surprisingly high returns (especially ‘guaranteed returns’).
- Consider how you could exit from the investment. The more exotic and specialist, the harder it will be to find someone to buy you out. Remember, liquidity demands a functioning secondary market.
- Any exotic investment schemes involving property are a particularly risky area. No matter how compelling the investment proposition, the hidden complexities around charges and the scope for over-optimistic valuations mean only the most experienced and qualified investors should pursue these.